Energy price cap: Will you actually save money?

The energy regulator has taken action to save consumers money on their gas and electricity bills. But don’t take it for granted that you’ll now get the best price on your bills.

From January 1st 2019 there’s going to be a cap on how much energy companies can charge you. It’s good news, but there are downsides too.

The headlines today talked about a cap of £1,137, cutting £76 off most annual bills. Though the savings will automatically apply to many bills, this isn’t a cap for everyone.

Listen to my podcast on the price cap

How the energy cap will work

First, this is about people on default or standard variable rates. These basically can go up and down whenever the energy company likes. Now the energy companies will have to make sure their tariffs aren’t higher than the set rate. Since these are likely to be the most expensive options anyway, the cap will help a huge number of people, roughly 11 million customers.

However, anyone who’s currently on a fixed deal won’t see any additional savings. That’s because they’ve already set a price per unit of energy for a fixed length of time, usually 12 months. Fixed deals are usually a fair bit less than the variable rates, so they’re already well below the level the cap will come in at. But not all of them are, and those above the cap won’t see any reduction.

So let’s say you’re one of those still on a variable energy deal. Well, it’s not as simple to say you’ll pay £76 less every year. That’s largely because the cap is actually a maximum price per unit that can be charged, not a maximum amount you can pay on your bill.

The much-reported figure of £1,137 is based on a typical user. So if you use more energy, you’ll pay more every year, though you’ll also save a bit more.

How much you save also depends on what you’re paying now. Ofgem figures show that whereas British Gas’s variable deal is £68 over the cap (based on a typical user), Scottish Power’s top rate is £120 higher.

It’s not perfect

With me so far? Well it soon gets a bit confusing. The cap will also vary depending on where you live in the UK. It’s not that easy to understand the exact ins and outs of this process, but you can see the variations on Ofgem’s website.

The cap is also only until 2023 and it will increase over time to reflect changing wholesale costs. In fact, it’s going to be reviewed as early as April 2019, which could immediately cancel out most of the savings. The next review will in October 2019, and then every six months. So the cap will keep on rising.

Finally, there’s the danger that people will assume the cap means they’re on the cheapest deal. But for most energy companies, the standard variable tariff, even with a cap, is going to be the most expensive option.

Which means the best way to make sure you’re not paying too much is to switch to the cheapest provider, and likely fix your energy bill too.

How to get the cheapest energy deals

I’ve written about this a few times, so I won’t repeat myself in too much detail here (you can read more in the articles listed a bit further down the page). But here’s the three essential steps you need to make sure you’re always paying less than the new cap.

1. Compare your energy bills.

I use Money Saving Expert’s Cheap Energy Club as I think it gives the fairest comparison. It will take you 10 minutes. JUST 10 MINUTES.

2. Look for a fixed deal.

Though sometimes variable rates can be cheaper, I always go for a fixed deal as it guarantees you won’t see any increases for the length of the fix, usually 12 months.

3. Do it again

Make a note in your diary for a month before your fixed deal ends, and repeat the process.

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